Gold steady in quiet early trading ahead of upcoming inflation reports
Lundin sees much higher prices ahead as the ‘Fed’s ‘impotence is revealed.’

(USAGOLD – 11/9/2021) – Gold held steady in quiet early trading ahead of today’s much-anticipated wholesale price report. Tomorrow we get the second half of the monthly inflation picture when the government releases its October consumer prices report. The yellow metal is level at $1826. Silver is down 9¢ at $24.43. Some analysts view last week’s Fed’s tapering announcement as a future deterrent to higher precious metals prices. Others, like Gold Newsletter’s Brien Lundin, see it as an inducement for bigger and better things to come.

“As I write, the 10-year yield has fallen from 1.582% to 1.465%,” he wrote in an advisory released this past Friday. “I’ll let the pundits ponder the reasons why yields are falling as the Fed’s support for the market is waning, but many also view gold’s typical rebound on tightening news as being illogical. I think it’s all a part of how the markets no longer trade on fundamentals post 2008, and are purely driven, at least in the short term, by the shifting fancies of the algos and hot-money traders in futures. Those same factors are what have kept the metals corralled as monetary and fiscal policies have fueled rampant inflation, and perhaps those traders will now get behind the metals and help them make up for lost time. Regardless, the end result – manipulation or not – will be much higher prices for gold and silver as the Fed’s impotence is revealed. So we’d better be ready.”

Chart of the Day

Gold price and the yield on 10-year inflation-indexed security

overlay chart showing the price of gold and the net yield on the 10 year inflation indexed security
Sources: St. Louis Federal Reserve [FRED], Federal Reserve Board of Governors, ICE Benchmark Administration • • • Click to enlarge

Chart note: As you can see in this chart, declining real rates have had a direct effect on the price of gold, particularly noticeable in the period after the 2007-2008 credit collapse and the pandemic-induced economic crisis that began in early 2020. The inflation-indexed real rate of return on the 10-Year TIPS is fluctuating around the 1% level. With inflation on the rise, the negative real rate of return will accelerate unless the Fed and/or bond market pricing push yields higher at an equivalent rate.

 

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